U.S. government bonds rallied, the dollar strengthened and Wall Street stocks faltered as investors anticipated a slowing economic recovery from the pandemic.
The yield on the benchmark 10-year US Treasury Index, which moves backwards from its price, fell 0.07 percentage points to a four-month low of 1.301 percent. The equivalent yield on the German Bund fell 0.04 percentage point to minus 0.309%, its lowest since early April.
Fears that the Federal Reserve might respond to a rapid recovery in the United States and surging inflation with a series of rapid rate hikes pushed the yield on the 10-year note to nearly 1.8% in March. But those worries were replaced with expectations that US gross domestic product growth, which is expected to have reached an annualized rate of at least 9% in the second quarter, was about to peak, analysts said.
Data from the Institute for Supply Management on Tuesday also showed that activity in the US service sector declined in June compared to the previous month.
“The bond markets are expressing the view that we are approaching the downturn in the economic cycle,†said Gergely Majoros, portfolio manager at Carmignac.
In equity markets, the S&P 500 edged up 0.3% and the technology-focused Nasdaq Composite lost 0.3%, although both stock indexes remained close to record highs as of today. lunch in New York. The continent-wide Stoxx Europe 600 rose 0.8%, close to its record last month.
The dollar index, which measures the greenback against major currencies, climbed 0.3% to its highest level since early April. The euro fell 0.2% to $ 1.1795.
The intensifying spread of the Delta variant of the coronavirus had thwarted the “gangbuster narrative” that had dominated markets for most of 2021, Deutsche Bank strategist George Saravelos said.
Ever since drugmakers announced effective coronavirus vaccines last November and Joe Biden unleashed billions of dollars in stimulus after being elected President of the United States, markets have been buoyed by “a mix unprecedented pro-cyclical fiscal and monetary policies as the economy took off, â€Saravelos said.
But growth must now “be much more dependent on private sector spending than on the public sector,” he added.
Later Wednesday, the U.S. central bank will release the minutes of its June meeting, when officials put forward projections for the first post-pandemic one-year interest rate hike through 2023.
These will be scrutinized for clues as to when the Fed plans to cut its $ 120 billion in emergency debt purchases per month, which began last March to boost markets during the pandemic, although economists generally don’t expect an announcement until the end of the year.
“Presumably, the bond market considers it unlikely that the Fed will raise rates near the peak of the last cycle,†Jefferies strategist Sean Darby said, “as structural forces,†such as public debt and high corporate level, “keep the Fed close to the zero mark.”
Elsewhere in the markets, Brent crude fell 2% to $ 72.97 a barrel, after falling 3.4% on Tuesday. This came after the end of talks between members of the Opec + group from producing countries without any agreement on liquidating the supply restrictions of Covid-19.
“If the current impasse persists, respect for [the] eventually the production quota will deteriorate, â€Morgan Stanley analysts said. “Much of Opec’s unused capacity could hit the market quickly.”